With the exception of a few niche areas such as benchmark administration, December 9 2019 was the date from which the Senior Managers & Certification Regime (SM&CR) applied across all sectors of UK financial services.

It means that firms from insurance brokers to payday lenders, claims management companies to pension advisers and debt managers to mortgage advisers are now subject to the three components of the Regime.

Senior Managers Regime

The Financial Conduct Authority (FCA) has automatically transferred all individuals who held approved person roles to senior management functions under the new Regime. The exception to this is senior managers in Enhanced firms, which the FCA defines as any firm that is:

  • A large CASS firm – holding more than £1 billion of client money or more than £100 billion of safe custody assets; or
  • A mortgage lender with more than 10,000 mortgages outstanding; or
  • A firm which has had assets under management of £50 billion or more at any time in the last three years

Senior managers in Enhanced firms should already have applied to the FCA for approval, even if they have previously been part of their firm’s senior management team.

Where a firm wishes to appoint a new senior manager, they must apply to the FCA, who will assess whether that person is fit and proper to carry out such a responsible role. This requirement applies equally to Enhanced firms and other firms.

All existing and new senior managers will need a Statement of Responsibilities. Their firms should already have drawn up this document and its content should be reviewed regularly to ensure it remains up to date.

Certification Regime

The Certification Regime applies to individuals who are not senior managers, but who still have supervisory, management or customer-facing roles that means they could potentially cause significant harm to the firm or any of its customers. These individuals do not need to apply to the FCA for approval, and it now falls to their firms to carry out their own assessments to ensure these individuals have the qualifications, training, competence and personal characteristics to carry out the role. This assessment must be completed on an annual basis.

Conduct Rules

The Conduct Rules now apply to almost every employee of an authorised firm, and require employees to:

  • Act with integrity
  • Act with due care, skill and diligence
  • Be open and cooperative with regulators
  • Pay due regard to customer interests and treat them fairly
  • Observe proper standards of market conduct

Additional Conduct Rules will also apply to Senior Managers and require them to:

  • Take reasonable steps to ensure that the business of the firm for which they are responsible is controlled effectively
  • Take reasonable steps to ensure that the business of the firm for which they are responsible complies with the relevant requirements and standards of the regulatory system
  • Take reasonable steps to ensure that any delegation of their responsibilities is to an appropriate person and that they oversee the discharge of the delegated responsibility effectively
  • Disclose appropriately any information of which the FCA, or Prudential Regulation Authority, would reasonably expect notice

Firms could perhaps incorporate the wording of these Conduct Rules into annual declarations of honesty and integrity and ask employees to read and sign these documents. Together they could potentially be the financial services equivalent of the medical profession’s Hippocratic Oath.

Authorised firms should notify the FCA whenever they take disciplinary action against an individual for a breach of the Conduct Rules.

Link to a news article that explains who might be a senior manager or hold a certification role; how a firm might carry out an annual competence review; and in what circumstances the FCA might take action against a senior manager

Link to a news article that explains how the Regime applies to claims management companies

Link to a news article that examines what lessons can be learnt from the banks, who became subject to the Regime three years ago

Link to a news article that explains what needs to be covered in a Statement of Responsibilities

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article